Articles

What’s the state pension age and what will it be in the future?

7 minutes

Despite recent revamps, questions remain over the effect the state pension has on people’s retirement planning. Financial journalist John Fitzsimons looks at when the pension age is likely to increase again and how savers can supplement their state pension.

  • The UK state pension is the least generous in the developed world
  • The state pension age has been increased ahead of schedule
  • Take advantage of workplace pensions to boost your financial position

For many of us, the state pension is a key part of our financial retirement planning. The new state pension was introduced in 2016, and for the 2018/19 tax year pays up to £164.35 per week, although the amount you actually receive may vary depending on your history of national insurance contributions. If you’ve paid national insurance for less than 35 years, you’ll receive a smaller state pension.

Despite this recent restructuring of the state pension, questions remain over just how likely it is that the pensioners of tomorrow will actually receive help from the state in their later years.

How does our state pension compare?

A report from the Organisation for Economic Coordination and Development (OECD) in 2017 found that the UK’s state pension is the least generous in the developed world, delivering payments worth around 29% of average earnings to recipients.

That’s very low compared to the likes of the Netherlands, where the equivalent pays slightly more than 100% of average earnings, while Portugal (95%), Italy (93%) and Austria (92%) are all far more generous.

What will the state pension be for you?

Is there a future for the state pension?


Despite the fact that our state pension pays out far less than other nations, there are questions over whether it is financially sustainable.

Last year, the government brought forward some proposed state pension age changes, decreasing the amount of people who would soon be able to claim, and as a result saving money.

The retirement age had been due to increase from 67 to 68 in 2044, but this will instead be phased in between 2037 and 2039. People born between 1970 and 1978 will now have to wait an extra year before being able to claim their state pension.

More rises in the state pension are expected in the years to come.

‘The Government Actuary assumes state pension age will be 70 in the 2050s and 71 in the 2060s,’ explains Jon Thorpe, financial planner at Balance: Wealth Planning. ‘This means anyone aged 30 or below will not get their state pension until they are aged 70. And those aged 20 or younger will have to wait until they are 71.’

Patrick Connolly, chartered financial planner at Chase de Vere, suggests that in order for the state pension to remain financially viable for the government, either the state pension age will need to increase faster, pension payments will need to be cut, or the state pension will have to become means-tested, meaning it would no longer be available to everyone.

‘None of these will be popular options,’ he says.


How can I supplement my state pension?


Clearly, relying on state support to cover our costs in retirement is a risky gamble. As a result, it’s vitally important that all of us, regardless of our stage in life, work to build up a private pension pot which we can call on in our retirement. So, what are the best ways to save?

Workplace pensions are likely to play a big role for millions of pension savers. Over the last couple of years, the government has introduced auto-enrolment, which forces employers to open a pension on behalf of their employees and contribute towards it.

Currently employees are required to contribute a minimum of 3% of their salaries, with a further 2% coming from their bosses, though these are due to increase to 5% and 3% respectively from April 2019.

According to data from the Office for National Statistics, the number of employees contributing to a workplace pension has jumped to 73%, compared to less than 47% back in 2012, largely thanks to the auto-enrolment scheme.

Peter Bradshaw, director of Selectapension, argues that starting early with a pension can make a big difference.

The earlier you begin, the better the long-term returns, and you should increase your contributions as your pay rises over time

Peter Bradshaw Director of Selectapension

Paying close attention to how your pension funds are being invested is important too, so that you can track performance.

‘It is important that you review your pensions, ISAs and other assets you’ll be relying upon in retirement on a regular basis,’ explains Patrick Connolly. ‘You should get a statement from your pension provider either annually or every six months, which will give you an up-to-date valuation of your pension.

‘Also, make sure your pension isn’t too expensive. You need to understand how much you are paying your pension provider and how much you are paying on any underlying investment funds. You should be able to get this information from your pension provider.’

Jon Thorpe notes that it’s all a question of informing people why they need to save more for their later years.

‘Auto-enrolment is a start, but the media, politicians and the pensions industry need to do more to educate people about the need to save more if they are to enjoy a reasonable standard of living in retirement,’ he explains.

What is my state pension worth?

You can get a state pension forecast, which outlines what you are likely to receive in retirement, from the government’s website, or by calling 0800 731 7898. You may also be able to make extra national insurance contributions to make sure that you receive the full state pension.